by Calculated Risk on 10/17/2011 08:30:00 AM

From the NY Fed: Empire State Manufacturing Survey

The Empire State Manufacturing Survey indicates that conditions for New York manufacturers continued to deteriorate in October. The general business conditions index remained negative and, at -8.5, was little changed. The new orders index hovered around zero, indicating that orders were flat, while the shipments index rose above zero to 5.3.
...
The index for number of employees rose several points but was at a relatively low level of 3.4, while the average workweek index was negative for a fifth consecutive month.

This is the first regional manufacturing survey released for October. Expectations were for some improvement in this index.

Weekend:
• Summary for Week Ending Oct 14th
• Lawler: Early Read on Existing Home Sales in September
• Schedule for Week of Oct 16th

by Calculated Risk on 10/16/2011 09:30:00 PM

From Nick Timiraos at the WSJ: Slim Pickings Are Latest Headache For Home Sales

There were more than 2.19 million homes listed for sale at the end of September, down 20% from a year earlier, according to a new report from the real-estate website Realtor.com. That is the lowest level since the company began its count in 2007.
...
[R]eal-estate agents say ... people are pulling their homes off the market rather than try to sell them at today's ... prices.
...
In Detroit, the inventory of homes for sale was down by 28% from a year earlier, according to Realtor.com. Listings were down by 49% in Miami, by 48% in Phoenix and by 46% in Orlando, Fla. Housing inventory was down from one year earlier in all 146 markets tracked by Realtor.com except for Denver and El Paso, Texas.

This is similar to the data I've been using from HousingTracker. Even though inventory levels are at the lowest level in a few years, this is still a fairly high level of inventory. As I noted yesterday: "Based on [Tom Lawler's estimate for September], [NAR reported] inventory would fall to 3.44 million in September, down from 3.58 million in August, and months-of-supply would increase to 8.6 months from 8.5 months in August. This would be the lowest level of inventory for September since 2005 (2.77 million in Sept 2005). The peak inventory for September was in 2007 at 4.37 million."

Many of these people are probably waiting for a "better market" - and they probably will have a long wait!

Yesterday:
• Summary for Week Ending Oct 14th
• Lawler: Early Read on Existing Home Sales in September
• Schedule for Week of Oct 16th

by Calculated Risk on 10/16/2011 04:52:00 PM

From the WSJ: Europe Faces More Hurdles on Aid Plan

European leaders have primed investors to expect a sweeping euro-zone rescue plan to be unveiled within a week. But several hurdles remain, among them the details of a new Greek bailout, and clearing them could take weeks, not days. The result could be a plan broad in ambition but short on specifics.
...
The plan will have three pillars: a call for higher capital levels for banks, a beefing up of the euro zone's bailout fund, and a new package of aid for foundering Greece. The latter is proving particularly difficult.

Olli Rehn, the European Union's economy commissioner, said Saturday that he expects euro-zone leaders on Oct. 23 to "decide on the key principles and parameters" of the second Greek bailout, but that "technical finalization of the program will take place in the course of the subsequent weeks."

From the Financial Times: G20 calls for speedy eurozone package

France and Germany have less than a week of frantic negotiation ahead ... The Group of 20 richest nations told the eurozone that by the European summit next Sunday it should: agree on the losses the private sector should take on Greek debt; arrange a credible plan for the recapitalisation of Europe’s banks; and install a firewall to protect other countries from Greece’s woes.
excerpt with permission

Yesterday:
• Summary for Week Ending Oct 14th
• Lawler: Early Read on Existing Home Sales in September
• Schedule for Week of Oct 16th

by Calculated Risk on 10/16/2011 01:11:00 PM

Note: this is an unofficial list of Problem Banks compiled only from public sources.

Here is the unofficial problem bank list for Oct 14, 2011.

Changes and comments from surferdude808:

After several changes, the Unofficial Problem Bank List finished the week with 979 institutions and assets of $403.8 billion. A year ago, there were 875 institutions with assets of $401.6 billion on the list. This week, there were five removals and one addition.

The addition this week is The Savannah Bank, National Association, Savannah, GA ($737 million Ticker: SAVB). Also, the Federal Reserve issued a Prompt Corrective Action order against Anchor Commercial Bank, North Palm Beach, FL ($143 million), which has been operating under a Written Agreement since March 2010.

Among the removals are The Elgin State Bank, Elgin, IL ($277 million), which merged on an unassisted basis with St. Charles Bank & Trust Company, Saint Charles, IL. The other removals were the four failed banks -- First State Bank, Cranford, NJ ($204 million); Piedmont Community Bank, Gray, GA ($202 million); Country Bank, Aledo, IL ($191 million); and Blue Ridge Savings Bank, Inc., Asheville, NC ($161 million). All of these failures were costly relative to the failed bank assets at more than 22 percent. Moreover, Piedmont Community Bank and Country Bank resolution costs were around 35 percent of their respective assets. While the Unofficial Problem Bank List has trended down over the past three months, failure continues as the primary removal method.

Yesterday:
• Summary for Week Ending Oct 14th
• Lawler: Early Read on Existing Home Sales in September
• Schedule for Week of Oct 16th

by Calculated Risk on 10/16/2011 08:02:00 AM

From economist Tom Lawler:

Many folks have for some strange reason argued that safe and effective loan modifications for troubled borrowers should get these borrowers into 30-year fixed-rate mortgages – even though short-term interest rates are close to zero, and expected to stay close to zero “until at least 2013.” One reason, of course, is that the typical ARM offered by US lenders has been one where the margin over the short-term index rate used has been really high – 275 bp for prime borrowers and often 600 bp for “subprime” borrowers. Such margins have been well in excess of the effective margin of fixed-rate mortgages over the full Treasury curve, after adjusting for the option cost of the prepayment option.

If, however, an adjustable rate mortgage with a “reasonable” margin were offered to struggling borrowers, it might just be worth the “risk” of having these borrowers take some interest-rate risk in exchange for lowering their risk of losing their home, by having a larger share of their reduced payment going to principal pay down.

Many struggling borrowers, of course, are in danger of losing their homes in the short- or intermediate-term, and it’s not clear if putting such borrowers into a long-term fixed-rate mortgage which includes prepayment risk in the rate is the “best” for such borrowers.

As an example, consider a borrower who has a mortgage with a $200,000 balance, a 6.5% current interest rate, and 25 years (300 months) left to maturity. Suppose further that (1) the home’s current value is, say, $160,000; (2) the borrower’s current monthly income is, say, $52,000 a year; and (3) the borrower pays about $250/month in taxes and insurance.

Currently that borrower’s total mortgage payment is around 37% of her income, and she is $40,000 (20%) under water. In addition, a comparable home today would rent for less than her mortgage payment.

Now suppose one were to offer her two options: (1) modify her rate to a 4.5% fixed-rate loan that amortizes over 25 years; or (2) modify her rate where her payment was the same as a 4.5% 25-year fixed-rate loan, but her actual interest rate (or accrual rate) was set for the first 12 months at 1.50% -- which is about 140 bp over the one-year constant maturity Treasury rate – and would then adjust each yearly anniversary to a rate equal to the one-year constant maturity Treasury rate plus 140 bp.

If interest rates were to follow current forward one-year interest rates, then her interest rate would increase by less than 50 bp a year from now, and then about 50 bp the year after that. But for simplicity’s sake, let’s just assume that in each of the next four years, the one-year Treasury rate increases by 50 bp. Let’s take a look at what the borrower would face over the next several years.

First, of course, the borrower’s mortgage payment would decline by the same amount for both loans – about 15% (her P&I payment would drop by about 18%) – to about 31% of her income.

Here is what her mortgage principal balance would look like at the end of each of the next 5 years (1) for the original loan; (2) for the 4.5% FRM loan; and (3) for the ARM.

Remaining Mortgage Principal Balance, $200,000 Loan
End of Year:	6.5% 25yr FRM	4.5% 25yr FRM	1-Yr ARM 25yr Am
1	$196,698	$195,569	$189,589
2	$193,174	$190,935	$179,872
3	$189,415	$186,088	$170,850
4	$185,404	$181,018	$162,449
5	$181,124	$175,716	$154,600

Because the 1-year ARM is based on a 4.5%, 25-year amortization schedule but the accrual rate is based on the very low short-term interest rate, a much larger % of the borrower’s payment goes to paying down principal – which is shown graphically in the above table. If interest rates were to increase by just 50 bp each year, the borrower’s mortgage balance would fall below TODAY”S value of her home in four years and four months. For the 4.5% fixed-rate loan, the borrower’s mortgage balance would not fall below $160,000 for seven years an nine months.

Of course, the borrower in the ARM case would be exposed to the risk that interest rates would increase. However, this borrower is already at significant risk of defaulting. Moreover, the borrower might be more WILLING to accept the ARM offer once she saw that her mortgage balance was falling so fast.

CR Note: This was a proposal from Tom Lawler for Seriously-Troubled Loans.

Yesterday:
• Summary for Week Ending Oct 14th
• Lawler: Early Read on Existing Home Sales in September
• Schedule for Week of Oct 16th